WHAT IS CAPITAL GAINS TAX(PAKISTAN)?

Capital Gains Tax (CGT) in Pakistan is a tax levied on the profit earned from the sale or transfer of capital assets such as real estate, securities, and shares. It is a key component of the country’s direct taxation system and is governed primarily under the Income Tax Ordinance, 2001. The tax is applicable to both individuals and companies, and its rates vary based on the type of asset, holding period, and residency status of the taxpayer. Understanding CGT is essential for investors, property owners, and business entities alike, as it directly impacts decisions related to asset disposal and portfolio management.

What Are Capital Gains?

Capital gains are defined as the difference between the sale price and the purchase/acquisition price of a capital asset. If an asset is sold for more than its cost, the resulting gain is termed a capital gain and is subject to tax under Pakistani law.

There are two types of capital gains:

• Short-term Capital Gains: Gains on assets held for a short period (e.g., less than one year for securities)

• Long-term Capital Gains: Gains on assets held for a longer period (e.g., more than four or six years for real estate)

Legal Framework Governing CGT in Pakistan

• Income Tax Ordinance, 2001

• Income Tax Rules, 2002

• Annual Finance Acts for rate changes

• Administered by the Federal Board of Revenue (FBR)

Applicability of Capital Gains Tax

CGT in Pakistan applies to the following types of capital assets:

1. Shares and Securities (Stock Market)

2. Immovable Property (Real Estate)

3. Units of Mutual Funds

4. Business Assets

5. Foreign Capital Assets (for resident persons)

1. Capital Gains Tax on Shares and Securities

The taxation of gains on the disposal of listed securities is governed under Section 37A of the Income Tax Ordinance, 2001.

Who Pays?

• Individual investors

• Companies (resident and non-resident)

• Mutual funds and brokers

Tax Rates for Listed Securities (Tax Year 2025)

Exemptions

• Securities acquired before July 1, 2013

• Gifts or inheritances (subject to certain conditions)

Filing and Compliance

• Gains are usually subject to withholding by NCCPL (National Clearing Company of Pakistan Limited)

• Taxpayers must still declare and reconcile gains in their annual income tax returns

2. Capital Gains Tax on Real Estate

Capital gains on the sale of immovable properties (plots, houses, apartments) are taxed under Section 37(1A) of the Income Tax Ordinance.

Applicability

• Sale of open plots, constructed property, or agricultural land (if held for commercial purposes)

Rates on Real Estate (For Tax Year 2025)

Important Points

• The valuation is based on FBR notified rates or market value, whichever is higher

• Advance tax (Section 236C) is also applicable at the time of property transfer

• CGT is not applicable if property was acquired before July 1, 2016 (subject to conditions)

Exceptions and Exemptions

• First-time sale of self-occupied property (under specific thresholds)

• Transfer through inheritance or gift

• Agricultural land not used for commercial purposes

3. Capital Gains on Mutual Funds and REITs

Units of mutual funds, real estate investment trusts (REITs), and similar collective investment schemes are also subject to CGT.

Rates (as per Finance Act 2024)

4. CGT on Business or Personal Assets

When business owners sell plant, machinery, or other capital assets, gains are also subject to CGT:

• Depreciable assets – Gains taxed under Section 22(8) as business income

• Non-depreciable assets – Taxed as capital gains

• Personal assets like jewelry or art are generally not subject to CGT unless used for business

5. Capital Gains on Foreign Assets

For resident individuals, capital gains on foreign property, stocks, or investments are taxable under Pakistan law:

• Foreign tax credits may be available under Section 103

• Double Taxation Avoidance Agreements (DTAAs) may reduce or eliminate tax

• Foreign income must be declared in the annual wealth statement

Capital Losses and Set-Off Rules

• Capital losses can only be set off against capital gains

• Unadjusted losses may be carried forward for 6 years

• Losses cannot be adjusted against salary or business income

How CGT Is Collected and Paid

1. Through NCCPL for stock market investors

• Auto-deducted based on investor category and holding period

2. Through FBR for property sellers

• Payable at the time of registration via tax challan

• Taxpayers must declare the gain in their annual return

3. Manual payment for other assets

• Declare the gain in the annual income tax return

• Pay through advance tax or on assessment

Capital Gains vs. Other Taxes

• Capital Value Tax (CVT) – Tax on acquisition of property or assets

• Advance Income Tax – Collected on sale of property or shares

• Stamp Duty – A transaction cost on sale/purchase

• CGT is different – It’s based on profit, not value or transaction

Recent Updates (2024–2025)

• Increase in CGT rates for non-filers to 30% across all holding periods

• Enhanced documentation requirement under Section 165A

• Integration with NADRA and land records to detect underreporting

• Provisions for automatic exchange of property sale data with FBR

• Mandatory filing of wealth statements for capital asset sellers

Filing Requirements and Documentation

To comply with CGT rules, taxpayers must:

• Maintain records of purchase and sale (date, cost, commission, taxes)

• Use valuation certificates if the cost is not available

• Declare capital gains in the annual income tax return (IRIS portal)

• Submit wealth statements and reconciliation with bank statements

• Keep property transfer letters or share sale agreements as evidence

Penalties for Non-Compliance

• Non-filing of returns can lead to penalties under Section 182

• Understatement of gains may result in audit and additional tax

• FBR may impose default surcharge and initiate recovery proceedings

How Accountants and Tax Consultants Help

Given the complexities, most taxpayers consult professionals who assist with:

• Accurate CGT calculations based on documentation

• Advising on holding period strategies to reduce tax

• Filing tax returns with FBR and reconciling CGT paid

• Managing disputes, audits, or notices from tax authorities

• Structuring investments to legally minimize tax exposure

Conclusion

Capital Gains Tax is an integral part of Pakistan’s taxation system, especially as investment in real estate and securities continues to rise. Whether you’re selling property, trading stocks, or disposing of business assets, understanding CGT laws can help you stay compliant and make smarter financial decisions. The evolving legal framework, stricter documentation requirements, and enhanced digital tracking make it more important than ever to properly assess your capital gains, maintain supporting records, and file taxes on time. Consulting with a tax professional can help you navigate the complexities and avoid unnecessary liabilities.